“The Pallet Dilemma”

The productivity value of pallets applies to two basic areas of operations: internal materials handling, and the movement of goods between trading partners. Standardization of pallet design contributes to effective materials handling between trading partners, as well as efficient application of automation throughout various supply chains. These dynamics have led to the development and widespread use of standardized pallet designs. One such standard is the GMA (Grocery Manufacturers of America) 48”x40”, 4-way pallet used throughout the food and consumer products supply chains in the domestic US. A pallet built to the GMA guideline specifications has significant load-bearing capabilities, is rackable, reusable and repairable, resulting in a relatively long life cycle. It also comes with a substantial price tag, and as a result is a valuable asset requiring effective management and control processes. Unfortunately, trading partners in the grocery and other supply chains that have adopted the GMA pallet standard, have struggled mightily with the charge of managing this asset across company boundaries. This is the pallet dilemma.

Exchange, Rent, or "B.U.S.SM*"?

In the Food and Consumer Products supply chains the most common "practice" for managing pallets used in shipments is "pallet exchange". This practice has been a problematic process in the supply chain for many years, and has been the target of many industry studies and improvement efforts. These efforts over the years have not been very successful. Poor pallet quality, record keeping problems, and inconsistent standards/expectations of the trading partners involved have contributed to a general opinion that the exchange process does not work. Carriers have been "stuck in the middle" of the exchange problem, and as a result the process has added significant costs to carrier operations, which causes upward pressure on freight rates and/or accessorial charges.

An alternative to the exchange process that has gained some acceptance is 3rd party pallet rental. This concept eliminates the exchange process, reducing carrier costs, and also addresses the poor quality problem. While rental programs have these benefits, they also have drawbacks, which has resulted in many manufacturers continuing to maintain exchange programs.

An Alternative Solution

An alternative concept that also eliminates the exchange process is "B.U.S.": the "Buy/Use/Sell" Pallet Management Process. This concept transfers ownership of the pallet from the pallet supplier to the manufacturer, who uses the pallet internally, then sells the pallet under product to the distributor/retailer at a discounted price. The distributor/retailer uses the pallet internally, then sells the pallet to a pallet recycler, who repairs the pallet if needed, then sells the pallet back to the manufacturer for the next "cycle". Like the rental concept, this concept eliminates the exchange process, thus achieving the reduced carrier cost benefit. This concept also provides several additional benefits that the rental program does not.

Additional Benefits of the B.U.S. Process

Competitive Market Dynamics- The Buy/Use/Sell, or B.U.S. Pallet Management Process, allows manufacturers to source all pallets in a competitive purchasing environment as opposed to an exchange environment. There are many pallet suppliers and recyclers in a mature marketplace capable of providing quality pallets that meet defined specifications. In addition to cost/price and quality, supplier service performance can also be managed effectively in a competitive environment. Competitive market dynamics also provide an opportunity for distributors/retailers to optimize recovery value of pallets, resulting in lower operating costs. Both purchase price and selling price are negotiable factors that can dramatically reduce distributor/retailer total pallet expenses.

Administrative Simplicity- Buying and selling are among the most basic SOP's for every manufacturer and distributor/retailer. Pallet exchange programs and pallet rental programs are not typically well-managed programs due to the unusual nature of the transactions involved, and the inherent pallet inventory management problems. With the B.U.S. Process, pallets are treated just like any other raw material or supply item that is purchased for operations. When the pallets are used to ship products to customers, the pallet becomes a product for sale as well. Treating pallets as a product to be sold just like any other product, creates continuity in business processes, eliminating the need for unique processes for pallet management.

Distributor Dock Efficiencies- Receiving products on high-quality pallets, designed to meet distributor/retailer's needs, can result in "put-away-ready" unit loads. This can dramatically reduce re-stacking activity on the dock, reducing costs, reducing unloading times, and improving productivity. Reduced unloading times also improves equipment and driver utilization for carriers, improving productivity and reducing freight costs.

*Patent Pending